the 3Ms of trading

The 3Ms of Trading are Methodology, Money Management, and Mindset, and they each play a crucial role in your success in trading.

As a trader, you will need to master all 3 Ms, but you also need to know the relative importance of each factor.

In this post, I will explain how each factor affects your trading success, and which factors you should be focusing on to improve your trading.

3Ms of Trading


What to Focus on in Trading?

Having studied many professional traders, I found that there are 3 crucial factors that have led to their success.

All these market wizards have found success because they have understood and mastered the 3Ms of trading – Method, Money and Mindset.

Method (methodology): Process by which a trader enters into the market, using either technical or fundamental inputs to make their decision

Money (risk management): This includes capital allocation, risk parameters (drawdown limits), risk-to-reward calculations (entry price, profit target, stoploss)

Mindset (psychology): Market psychology the most important part of trading, and determines how well you can execute your trading plan in the markets in real time

To many new traders who know of these 3Ms, they tend to make the mistake of giving equal weightage to all 3 parts (refer to above), or even worse, almost 100% weightage to the “Method”.

The psychology (mindset) is the hardest part of trading because emotions like greed and fear run wild once your money is at stake in the market.

Hence, your degree of rational analysis is only limited to how well you can manage your psychology.

Without the execution, the plan is useless. The money and risk management is also essential because it ensures your survival and consistency in the markets.

After all, the number one rule is capital preservation.

“Don’t focus on making money; focus on protecting what you have.” – Paul Tudor Jones


Methodology (10% Focus)

Methodology refers to your method of analysis, your strategy, your setups, basically the basis on which you make your buying and selling decisions.

As we will be covering in greater detail in other blog posts, I will not be elaborating too much on this here.

For now, all you need to know is that the most common tools used to make such decisions are technical analysis, fundamental analysis, or some combination of both.

Money Management (30% Focus)

Money management, or risk management, refers to how well you use your trading capital, to maximize your returns, while at the same time minimizing your risk.

This includes your capital allocation per trade, such as the 2% money management rule, and also things like risk paramaters for each trade, such as maximum drawdown limits.

This means that for each trade, you will need to decide on the entry price (EP), stoploss price (SL), and target profit (TP) before you make each trade, so that you will be able to calculate the reward-to-risk (RR) ratio to decide whether it is worth taking the trade.

reward to risk ratio

To be profitable in trading, all you need is a good balance between the win ratio (aka. hitrate) and the reward to risk ratio, to ensure that you have a net positive expectation on every trade.

For example, if you have a 40% win ratio, and your reward/risk ratio is 2, you will still end up net profitable in the long run.


mathematics behind trading

Mindset (60% Focus)

The mindset, or trading psychology, is definitely the most important aspect of trading, and it is also the hardest to master.

This will determine how well you can make good decisions under stress, and consistently execute your trading plan without getting swayed by emotions.

Thinking accurately requires a certain level of self-awareness, so that we can avoid any behavioral biases that skew our rational thinking and decision-making process.



In conclusion, to be successful in trading, you need to master all the 3Ms, but the problem for most traders is they only tend to focus on 1 or 2 factors, and neglect the rest.

As a result, they might become very good at analysing charts (methodology), but remain poor at money management and trading psychology.

To improve your trading, the faster way to do so is to work on whatever you are weakest at, because that has the most room for improvement.

Now that I have shared the 3 important elements of trading, which do you think you are lacking the most, and will have the biggest impact on your trading if you work on improving it?

Let me know in the comments below.


thumbnail beginner guide to trading and TA

If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”

the 4 main types of trading strategies

In trading, despite the countless different strategies and setups that are used by traders all over the world, all these strategies can actually be traced back to these 4 core types:

  • Break (trading breakouts)
  • Swing (trend-following)
  • Bounce (counter-trend, mean reversion)
  • Turn (market reversals)

Each strategy type has its pros and cons, so in the future, when someone shares a trading strategy with you, you will instantly be able to see which category that trading strategy falls under, and hence deduce the pros and cons of the strategy.


types of trading strategies

1. Break (Trading Breakouts)

Breakouts happen when the market is in the ranging phase, and there is no clear trend in the market. As both the bulls and bears fight to gain control of the market, at some point either side wins, and prices break out of the sideways range and starts moving explosively in one direction.

2. Swing (Trend-following)

When the market is trending or starting to trend, it makes sense to ride the trend. Trend-following strategies are designed to detect the start of such trends, and get you in on them, as well as getting you out once the trend is over.

3. Bounce (Counter-trend, Mean Reversion)

Occasionally, there might be exceptionally strong short-term movements in the markets, such as a price spike on a news announcement, or a climatic buying or panic selling. When that happens, prices usually become overbought/oversold, and prices will have a rebound back to “normal” levels.

4. Turn (Market Reversals)

All markets and products follow certain large economic or trend cycles, which means that no matter how strong the trend, at some point it will exhaust the move and lead to a change in direction. This usually results in major turning points in the markets.


thumbnail beginner guide to trading and TA

If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”


The Different Styles of Trading Holding Period Timeframe Products etc

There are 3 main styles of trading, and by styles, I mean the way you approach trading, and this in turn will determine your holding period, timeframe, time commitment, and the products you trade.

Here are the 3 main styles:

  • Short-term
  • Medium-term
  • Long-term

Different Styles of Trading


Short-term Trading

Short-term trading is mainly for people who are doing it full time, and includes day trading (closing all positions by the end of the day) and scalping (taking extremely short-term positions which can last seconds).

Traders will mainly be using 5-minute or 15-minute charts, or even shorter timeframes, so this means that they will need to check their computer screens every few minutes, or stare at it constantly. This can be quite stressful for beginners, hence it is strongly not recommended.

The products traded will tend to be very liquid, have low commissions, and have significant price movements during the course of a day. These include forex, futures, and larger stock markets.

Medium-term Trading

Medium-term trading is the most ideal for part-time traders, as it does not require much monitoring of the markets. It is also known as swing trading, as it captures the “swings” in the markets.

Traders will mainly be using the 4-hour or daily chart, so they will only need to check their charts every few hours or even once a day, making it ideal for people who have full-time jobs and do not want to spend too much time looking at charts.

The products traded will tend to be those more customised to retail traders, such as forex, CFDs, and stock markets that do not have too high transaction costs.

Long-term Trading

Long-term trading is suited for people who do not have any time at all, and this includes position traders and investors who take long-term positions that can last weeks or months.

Traders will mainly be using the daily chart or weekly chart, meaning they will probably only be checking up on their positions weekly, monthly, or even quarterly. This is the most hands-off option, but it also requires a lot of patience, and is not suitable for people with little capital since your capital is going to get locked up for long periods of time.

The products traded will tend to be more asset-based, such as stocks, ETFs, REITs, or other assets which can appreciate over time and pay dividends.


thumbnail beginner guide to trading and TA

If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”


In addition to the mainstream methods used by professionals, you might also come across online some exotic and unorthodox methods:

  • Fibonacci analysis
  • Elliot wave theory
  • Gann theory
  • Harmonic patterns
  • Dow theory
  • Ichimoku Kinko Hyo (Cloud charting)
  • Volume Spread Analysis (VSA)
  • Market profile
  • Pitchfork analysis
  • Point and Figure (P&F)
  • Cycle analysis

Many of these theories were very popular at some point of time in the past, but after the hype died down, or newer methods replaced them, their use was mainly confined to hobbyists or niche bloggers.

I have read and studied all of them previously, so if time permits in the future, I might do some fun guides for some of them.


thumbnail beginner guide to trading and TA

If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”

the 3 main types of technical analysis

There are 3 main categories of technical analysis methods that are used by all traders:

Since I will be doing separate guides for each of these methods, for now I will be briefly going through each one.


Types of Technical Analysis


1. Classical Charting

These were the very first tools developed by traders, back when there were no computers and charts had to be plotted and analysed manually.

They include things like swing counts, support and resistance levels, trendlines, channels, price patterns, etc.

Even today, most traders still use these methods, usually in conjunction with other methods.

2. Technical Indicators

With the advent of computers, traders started using them to crunch numbers, and by applying mathematical formulas (using the open, high, low, close, volume data) were able to add another dimension of analysis which was not always obvious by visual observation.

There are thousands of indicators, but the common ones used are moving averages, MACD (moving average convergence divergence), RSI (relative strength index), Stochastics, Bollinger Bands, etc.

3. Price Action

Price action is a pretty broad category, but the main idea is to study the movement of price, while understanding the underlying reasons for such moves.

In the past, one such method was tape-reading, which has now evolved to reading the price ladder and order flow. but these are more for intraday traders on very short timeframes. I used to do that when I was trading for funds.

For retail traders, the more common approach is to study candlestick patterns, which is to identify unique clusters of bars, but for more advanced price action, it involves studying every single individual bar.

Most traders will use a combination of all 3 methods, since they are not mutually exclusive. The idea is to find a combination of tools that can enable you to find good trading opportunities with the least amount of effort.


thumbnail beginner guide to trading and TA

If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”